Uniwide Sales Realty and Resources Corporation vs. Titan-Ikeda Construction and Development Corporation

Payment made by a proprietor for additional works not authorized in writing constitutes voluntary fulfillment of a natural obligation, precluding recovery under the principle of solutio indebiti unless mistake at the time of payment is affirmatively proven.

Titan-Ikeda Construction and Development Corporation undertook three construction projects for Uniwide Sales Realty and Resources Corporation: a warehouse in Libis (Project 1), a renovation in EDSA Central (Project 2), and a department store in Kalookan (Project 3). Disputes arose over unpaid balances, VAT, additional works, liquidated damages, and alleged structural defects, prompting Titan to file a complaint in the RTC, which was suspended to allow CIAC arbitration.

• Project 1 (Libis Warehouse): A written Construction Contract was executed for P120,936,591.50, with a stipulated completion date of November 30, 1991. The building was finished and turned over on February 15, 1992. Uniwide paid P5,823,481.75 for additional works, despite the absence of written authorization, but later sought a refund claiming payment by mistake.
• Project 2 (EDSA Central Renovation): No written contract was executed; construction proceeded based on drawings, specifications, and a cost estimate of P21,301,075.77 (inclusive of a 20% mark-up) prepared by Uniwide's architect. Completed in October 1992, Uniwide paid P15,000,000.00. Uniwide alleged overpricing, claiming the true cost was only P7,812,123.60, and asserted structural defects in the columns.
• Project 3 (Kalookan Department Store): A written Construction Contract was executed for P118,000,000.00, with a stipulated completion date of February 28, 1993. The project was completed and turned over in June 1993. The contract expressly stipulated that Uniwide shoulders the VAT. Uniwide paid P2,400,000.00 as VAT, which it claimed was for Project 3, but both the CIAC and CA found the payment was for Project 1 based on an Order of Payment.
• Arbitration Proceedings: An Arbitral Tribunal was constituted, and a Terms of Reference (TOR) was signed by the parties. Uniwide introduced and quantified its claim for liquidated damages only in its memorandum submitted at the end of the proceedings, not in the TOR. The CIAC conducted an ocular inspection of Project 2, revealing that the allegedly "heavily damaged" column was structurally sound once the plaster was chipped off, and the defects pertained to an old column unrelated to Titan's work.

• Payment by Mistake: Uniwide argued that Art. 1724 makes no distinction between paid and unpaid works; thus, payment for unauthorized additional works should be refunded under solutio indebiti as it was made through mistake and false representation.
• VAT Liability: Uniwide asserted that VAT is an indirect tax shifted to the buyer only if agreed upon; since the Project 1 contract was silent, Titan should bear the VAT. The P2,400,000.00 paid was intended for Project 3.
• Liquidated Damages: Uniwide maintained entitlement to damages for delay in Projects 1 and 3, arguing the CIAC should have liberally applied Sec. 5, Rule 10 of the Rules of Court to allow the claim despite its absence from the TOR.
• Project 2 Deficiencies: Uniwide claimed submission of as-built plans is a condition precedent for payment under the National Building Code; Project 2 was overpriced and structurally defective, warranting the application of Art. 1723 of the Civil Code.

• Natural Obligation: Titan countered that Uniwide's payment for additional works constituted voluntary fulfillment of a natural obligation, barring recovery.
• VAT Liability: Titan argued the P2,400,000.00 payment was explicitly for Project 1 based on the Order of Payment signed by Uniwide's president.
• Liquidated Damages: Titan maintained the claim was belatedly raised and not in the TOR, depriving it of due process to present counter-evidence.
• Project 2 Deficiencies: Titan asserted the cost estimate by Uniwide's own architect is binding; defects were on old columns, not its work.

• Payment for Additional Works: Whether Uniwide is entitled to a return of the amount paid for additional works done on Project 1 under solutio indebiti.
• VAT Liability: Whether Uniwide is liable for the payment of the VAT on Project 1.
• Liquidated Damages: Whether Uniwide is entitled to liquidated damages for Projects 1 and 3 despite not raising it in the CIAC Terms of Reference.
• Project 2 Deficiencies: Whether Uniwide is liable for the unpaid balance of Project 2 despite Titan's alleged failure to submit as-built plans, overpricing, and defective construction.

• Payment for Additional Works: No refund is available. Art. 1724 denies the contractor the right to demand payment for unauthorized works but does not preclude the owner from voluntarily paying. Such payment constitutes fulfillment of a natural obligation under Art. 1423. To recover under solutio indebiti, the payor must prove mistake at the time of payment, which Uniwide failed to do; the presumption under Sec. 3(f), Rule 131 of the Rules of Court is that money paid was due.
• VAT Liability: Uniwide is liable for the VAT on Project 1 up to P60,000,000.00 of the contract price. The Order of Payment explicitly billed the P2,400,000.00 as VAT for Project 1, approved by Uniwide's President, indicating an agreement to pass the VAT based on a lower contract price.
• Liquidated Damages: Uniwide is not entitled. The CIAC is bound only by issues in the TOR, which functions like a pre-trial order. The Rules of Court on amendment to conform to evidence cannot be suppletory if it contravenes the spirit of CIAC rules. Raising the claim only in the final memorandum deprived Titan of due process.
• Project 2 Deficiencies: Uniwide is liable for the unpaid balance. Submission of as-built plans is not a condition precedent for payment; it is required for building safety standards. The cost estimate prepared by Uniwide's own architect is binding. Defective construction was not proven; the CIAC's ocular inspection revealed the damaged columns were old and not affected by Titan's post-tensioning.

• Finality of CIAC Factual Findings — Factual findings of construction arbitrators are generally final and conclusive and not reviewable by the Supreme Court. Exceptions exist when the award was procured by corruption, fraud, or undue means; there was evident partiality or corruption of arbitrators; arbitrators were guilty of misconduct in refusing to hear evidence; arbitrators were disqualified; or arbitrators exceeded their powers. Other exceptions include grave abuse of discretion resulting in lack or loss of jurisdiction, conflicting findings between the CIAC and the CA, and deprivation of administrative due process.
• Terms of Reference in CIAC Arbitration — The TOR functions similarly to a pre-trial brief or order. Issues not included in the TOR, or in any modified or amended version of it, cannot be resolved by the CIAC. The Rules of Court on amendment to conform to evidence cannot be used to contravene the spirit of the CIAC rules, which aims for fair and expeditious settlement.
• Natural Obligations and Solutio Indebiti — Payment for unauthorized additional works by the proprietor constitutes voluntary fulfillment of a natural obligation, authorizing the retention of what has been delivered. Recovery under solutio indebiti requires proof that the payment was not due and that it was made through mistake or under a cloud of doubt.

• "Art. 1724 does not preclude the payment to the contractor who performs additional works without any prior written authorization or agreement as to the price for such works if the owner decides anyway to make such payment. What the provision does preclude is the right of the contractor to insist upon payment for unauthorized additional works."
• "As an arbitration body, the CIAC can only resolve issues brought before it by the parties through the TOR which functions similarly as a pre-trial brief. Thus, if [the] claim for liquidated damages was not raised as an issue in the TOR or in any modified or amended version of it, the CIAC cannot make a ruling on it."
• "The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had 'misapprehended facts' and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as 'legal questions.'"

• David v. Construction Industry and Arbitration Commission, G.R. No. 159795 — Followed. Enumerated the exceptions to the finality of CIAC factual findings, such as corruption, fraud, evident partiality, and arbitrators exceeding their powers.
• Hi-Precision Steel Center, Inc. v. Lim Kim Builders, Inc., G.R. No. 110434 — Followed. Established that reviewing CIAC factual findings would set at naught the basic objective of voluntary arbitration; reiterated that courts will not review factual findings based on artful allegations of misapprehended facts.
• Metro Construction, Inc. v. Chatham Properties, Inc., 418 Phil. 176 — Distinguished. The Supreme Court reviewed the CIAC factual findings in that case because the CA's findings on the issue of delay were contrary to those of the CIAC.

• Article 1724, Civil Code — Denies the contractor the right to demand an increase in price for additional works unless the change was authorized by the proprietor in writing and the additional price determined in writing. Applied to rule that while the contractor cannot demand payment for unauthorized works, the provision does not preclude voluntary payment by the owner nor grant a right of reimbursement.
• Article 1423, Civil Code — Defines natural obligations, which do not grant a right of action to compel performance but authorize the retention of what has been voluntarily delivered. Applied to characterize Uniwide's payment for unauthorized additional works.
• Articles 2154 and 2156, Civil Code — Govern solutio indebiti, where obligation to return arises if something is received when there is no right to demand it and it was unduly delivered through mistake. Applied to reject Uniwide's claim for refund due to lack of proof of mistake at the time of payment.
• Section 3(f), Rule 131, Rules of Court — Presumes that money paid by one to another was due to the latter. Applied to bolster the ruling that Uniwide failed to overcome the presumption that its payment was due.
• Section 5, Rule 10, Rules of Court — Allows amendment of pleadings to conform to evidence when issues not raised are tried with express or implied consent. Held inapplicable to CIAC proceedings as it would contravene the spirit of the CIAC rules and deprive the opposing party of due process.
• Section 308, Presidential Decree No. 1098 (National Building Code) — Requires submission of as-built plans. Held not to be a condition precedent for payment to the contractor, but a requirement to safeguard life, health, and public welfare.

Quisumbing, Carpio, Carpio Morales, Velasco, Jr.